Incentivisation compensation management software will reveal the best sales staff, says Nicola Sullivan
As UK organisations, still stinging from the effects of the recession, become more focused on the governance and transparency of their reward packages, many are following their US counterparts and working more closely with sales directors to manage commission, bonuses and incentives.
According to Hewitt Associates’ European sales compensation survey, published in January, 41% of companies either think their sales incentive plans are ineffective or are uncertain of how valuable they are to the business. Of the 138 organisations surveyed, 30% made changes to their sales plans in the first half of 2009, but many employers felt unsure of the impact these changes would have on driving the business.
Adjusting market strategies
Robert Miller, senior reward consultant at Hewitt Associates, says: “As organisations begin to understand how they will emerge from the downturn and adjust their market strategies and product mix accordingly, we will see changes to the design of sales plans.
“These changes will probably reflect those we have seen in the past following market upheavals: ensuring plans are role specific, have the right metrics, provide decent accelerators for over-performance, and are based on sound target-setting procedures.”
ICM software systems
One of the ways organisations are handling such changes is by setting up incentivisation compensation management (ICM) software systems. Using such tools, employers can adjust sales targets and commissions, see the impact on profits, maintain governance over payroll costs, and focus sales staff on particular product lines. ICM tools have traditionally been popular in the US, but European employers have become interested in the technology as they seek to align employees’ compensation more closely with performance. Brian Cormican, business development manager at Oracle, says: “Over the last couple of years, more European-based companies have adopted the global approach of putting in one [ICM] solution across Europe or across the world, whereas four or five years ago it was predominantly North American companies.
“What we have seen in the last two years with the finance community is more and more regulation around how individuals, particularly in the banking sector, are compensated, as well as tying compensation into performance. This is not just performance in achieving a sales target, but proper performance management.”
ICM tools are also designed to give an organisation’s finance and HR department greater scope to approve and sign off sales representatives’ compensation plans, outlining their commission, variable pay and bonuses. Anthony Hutchins, sales director and partner of Open Symmetry, says: “These systems often allow employers to document the compensation plan and have different people approve it. So a sales person has to say ‘yes, I have received it and I am going to work to the plan’ and the sales manager will also say ‘yes, I have approved that’. Maybe someone in finance or HR will do the same, as well as the sales director.”
Historically, sales departments have led much of the governance and decision-making on sales staff compensation packages. Ron Burke, a consultant for the sales effectiveness and rewards business at Towers Watson, says:
“There has been a realisation in recent years that, in many organisations, there is a very large number of incentive plans in different divisions in different business units, in different countries around the world. Nobody knows how many plans they have, how much they spend on them or the results they are achieving. “There are some concerns about whether the sales force is establishing for itself a good corporate governance [structure]. It does not mean they are doing things wrong, but in the current corporate environment, questions are being asked about that.”
Typically, an ICM system allows a sales employee to see how much commission they have earned in a month, while also highlighting where they are in relation to their overall targets for the year. Some systems allow staff to click onto individual targets and view detailed transactions on the products they have sold in a particular month. ICM software also gives managers information on the performance of their employees, enabling them to rank team members against each other.
Such systems are often heralded as an effective way to engage staff and manage their performance in a way that helps the business achieve its objectives. As employees are given a clear view of what they have already achieved towards meeting their targets and how many sales they still need to make, it can help to boost motivation.
“It gives you a real-time view of what is happening, as opposed to waiting two or three months after the target has been met, which can have an impact on a individual’s engagement with the organisation,” says Oracle’s Cormican. “It is about having the control from the organisation, which says ‘if we achieve this amount of sales, we will pay out this [amount]’, so there is little commission drift or variable pay drift and the organisation should know exactly what it is committed to. If it has done its planning properly and it has got online reports, it will be able to track exactly where it is and what its performance is as regards its sales force.”
But, like most reward technology systems, ICM tools will not be effective unless the data on an employee’s compensation plan is accurate. To obtain the benefits such tools can offer in reducing administration and increasing efficiency, employers must conduct a thorough audit of data held in their current system. Burke says: “Generally, these [ICM] systems are taking an organisation’s data, often from lots of different systems, and consolidating it into one tool.
“But if the data is bad in the first place, then it is the old situation of garbage in, garbage out. There can be an undue amount of hope placed on the fact that the ICM system is going to solve all the ills of the sales compensation plan and the sales performance management process,” he says.
Good communication of an ICM programme is also vital. Performance management and recognition firm AYMTM, for instance, uses a Facebook-style tool to communicate the incentive programmes it provides for staff. Its My Face site allows employees to invite their colleagues to be online friends, and pictures of incentive winners are posted on the site. An SMS function enables employees to receive performance updates via text message and to answer questions in a product knowledge test, entries to which are put into a prize draw.
So, although ICM tools are increasingly being seen as part of a modern approach to managing sales compensation in the UK, employers must feed them with high-quality data to ensure they are effective
Why an employer would use incentivisation compensation management software
Incentive compensation management (ICM) systems are often heralded as an effective way of engaging sales employees and helping an organisation hit its sales and business targets.
Such tools improve the efficiency and transparency of sales incentives and compensation, giving HR and finance departments greater control over how rewards are governed.
ICM gives sales staff a clear understanding of what they need to do to reach their targets, while enabling managers to rank their employees against each other in terms of performance.
ICM reduces the administrative burden of managing commission, bonuses and variable pay. It can also help to ensure data on reward is accurate and consistent across an organisation.
Case study: Coats sews up better management
Sewing thread and needlecraft supplies firm Coats is rolling out an online-hosted compensation management (CM) tool.
The system, provided by consultants Mercer, will allow Coats to manage its market data more effectively and improve the efficiency of its CM. This will be achieved by market position analysis and benchmarking an employee’s data against the data on base pay and total remuneration outlined in Mercer’s annual survey.
Adam Phillpot, head of reward at Coats, says: “It enables us to make more effective decisions on compensation management, and we can implement these without the need for hiring and training additional resources.”
The tool, which will be applied to Coats’ top 500 staff in more than 70 countries, is designed to streamline its CM processes. It will enable Coats’ reward staff to achieve more in-depth analysis and benchmarking of pay, as well as free up time for them to carry out other strategic activities.
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